China Asset Prices Stump Nobel Prize Winner Robert Shiller

Nobel Prize winning economist Robert Shiller, who correctly predicted the 2000 tech stock crash as well as the 2008 subprime crisis, was in China last week, and even one of the world’s great financial minds wasn’t sure what to think.

Shiller, who teaches at Yale University and jointly won the Nobel in 2013 for his analysis of asset prices, admitted difficulty in trying to figure out the real worth of assets in China. Speaking to the local press, Shiller (who is ranked among the 100 most influential economists of the world) said:

China is in such a rapid growth period, it is very hard to price assets when growth is at the high level. The future matters more, in a stable economy that is not going anywhere, you have a pretty good idea of what they are worth.”

And when asked whether he thought the Chinese housing market would collapse in manner similar to the US during the subprime crisis, the economist who predicted the downfall of America’s housing market one year before Lehman fell apart again equivocated. “It could and I am not predicting it,” Shiller said of the possibility of China’s property bubble bursting.

Investors with Nowhere to Run

The reason that Shiller believes that cash won’t go running scared from China’s real estate market, is simply that it has nowhere else to go.

“I am thinking that Chinese investors don’t have as many opportunities to spread around the world as the Americans do. So there is a captive audience for real estate investment and that support will be removed as China’s capital flows are liberalised,” Shiller told the media.

China has strict controls on the amount of cash that individuals can send out of or bring into the country in any given year, and domestic investors have few investment alternatives between a shaky real estate sector, casino-like stock markets, and feeble interest on bank deposits.

Yale’s Sterling Professor of Economics was in Beijing last week meeting Chinese policy makers and spoke with the country’s main planning authority, the National Development and Reform Commission (NDRC).

No Hard Landing

Aside from the real estate sector, Shiller was more positive than many international observers regarding China’s economy and said that he didn’t believe the country was headed for an abrupt slowdown.

“I don’t expect China to reach a hard landing. I think that economic growth rate will inevitably and gradually decline,” said during his visit.

Instead Shiller indicated that he thought China’s growth rate would gradually cool in a manner similar to Japan’s as the nation’s economy continues to grow in scale.